Whether they are seeking an initial infusion of cash flow to get a business up and running, or funding to finance expansion or the development of a new product line, most businesses will need to raise additional capital at some point on the road to success.
While there is plenty of money available for small businesses, sometimes it can seem rather difficult to get one’s hands on it. This is due in no small part, to the tightening up of lending procedures in the wake of the financial crisis. However, other factors certainly come into play. So what are some of the best ways for small businesses to raise additional capital?
Getting a Loan
Business loans are one of the most common means of financing companies. While getting approval for a small business loan has gotten considerably more difficult, financing is certainly not unobtainable. There are just certain elements that will need to be in place before a business owner attempts to acquire the capital.
For one thing, unless a business has a solid credit history under its belt, banks are almost certain to require the principals of the business to take personal responsibility for the loan. To do this, each business owner will sign on as a personal guarantor, or they will have to put up personal property as collateral. This way, if the business defaults on the loan, the bank will have alternate ways to recover its investment.
New businesses may also want to take a look at SBA loans. These loans, which are guaranteed by the U.S. Small Business Administration, give lenders extra security for their investments by guaranteeing a certain percentage of the loan. SBA loans are available in a variety of configurations, from small, short-term microloans, all the way up to the larger, fixed rate 504 Loan Program. Remember, in order to apply for a SBA loan, you’re business needs to have registered for a D&B D-U-N-S number®, which registers your business in the internationals DUNS database with basic business information.
Using Your Own Funds or Investments
If you have a healthy savings or investment portfolio, then you may want to consider using some of your own money, or liquidating a portion of your investment portfolio, in order to finance your business.
If you’re short on funds, you should also think about selling assets in order to raise the capital necessary for the next phase of your business’s development. Take an inventory of the valuables you possess, such as jewelry, automobiles, and property. Some items you may be able to do without, and some you might be able to replace with less-expensive alternatives.
For example, if driving a more modest vehicle means the difference between starting your business on your own terms and going deep into debt, then it should certainly be considered.
Borrowing Against Your Assets
One way you can do this is by borrowing against the equity you have in your home. If your home is worth $300,000, and you owe $150,000, then you can borrow against the $150,000 of equity that you have built up. Borrowing against home equity works well because you’re borrowing against your own property, so the loan is automatically secured. However, those starting new businesses should set aside part of the loan to cover the payments until the business starts turning enough of a profit to cover them.
Another way you can borrow against your existing assets is by taking out loans against the eventual payout of your whole life insurance policy. You do this by contacting your insurance agency, and notifying them that you’d like to take out a policy loan. Insurance companies will usually loan up to 9/10 of the cash value of the policy, and the interest rates are typically quite reasonable. However, if you pass away with an outstanding loan, it may diminish the benefits afforded to your survivors.
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Starting a business is never easy. Entrepreneurs and small business owners have a lot to worry about when it comes to running their business, and the complicated financial and tax details can make life as a business owner overwhelming. Dun and Bradstreet Credibility Corp.™ is a small business advocate that offers tips and solutions to assist small business owners navigate the challenging waters of business ownership. CreditSignal® is a free product that allows small business owners, like you, to be notified when changes are made to your business credit profile. Visit DandB.com to learn more.